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In sustainable agritech and traceability, emerging markets will lead, not follow

Published on December 14, 2023

In the last few years, global corporations have begun to recognize the increasing importance of traceability and transparency in their agriculture supply chains. FMCG giant Unilever, for instance, has revised its sustainable sourcing program and pledged to ensure 100% sustainable sourcing of its key crops. 

Other giants in the food production space such as Coca-Cola and Nestle have committed to creating systemic change in the agricultural supply chain by prioritizing sustainable sourcing and enabling traceability. 

Research shows the global food traceability market is estimated to reach US$45.29 billion by 2031. One of the major drivers for market growth will be the tightening of global supply chains by governments – a move to improve long-term environmental health and eliminate forced labor across the global supply chain. 

For instance, the European Union’s new regulation that came into effect in June 2023 aims to curb deforestation and forest degradation. The recently enacted law mandates that businesses involved in the trade of cattle, cocoa, coffee, palm oil, rubber, soya, and wood, including products made from these resources, must thoroughly examine their supply chains. This is to guarantee that their products are not sourced from areas affected by recent deforestation or forest degradation and that they do not violate local environmental and social regulations.

Such a wave to drive sustainable sourcing has given rise to new verticals such as sustainable agritech and supply chain traceability. Considering that it’s mostly developed nations that are driving these changes in supply chain regulation, it’s easy for most to assume such innovations can only come from developed nations. But I argue the opposite. 

Emerging markets like Indonesia, which are fueled by unique socio-economic challenges, climate vulnerabilities, and cultures of innovation, are spearheading novel solutions – both online and offline – in sustainable agritech. They will lead the next wave of global innovation in agriculture and supply chain transparency.

With its massive economic dependency on the agricultural sector, a market like Indonesia is poised to benefit significantly by implementing traceability frameworks in agricultural supply chains that are up to par with Northern European standards. 

The emerging market lure 

Indonesia has been known as an agrarian country for centuries as it is also one of the world’s largest producers and exporters of important crops such as palm oil, rubber, coffee, rice, and others. 

Agriculture was the only sector that grew during the pandemic, serving as a cushion to the entire Indonesian economy. The local government stated that Indonesia’s export value on agriculture drastically increased from Rp300 trillion (some US$20.14 billion) to Rp665 trillion (some US$44.66 billion) in 2021. 

The local agriculture sector contributes almost 14% of Indonesia’s GDP, making it the third largest pillar of the local economy. However, it is also one of the least digitized sectors in the country. 

This translates to massive untapped opportunities for both startups and investors. Building technology that matters to the agriculture sector is crucial. 

Over the years, we have seen a slew of agritech startups such as fisheries platforms, B2B food supply chain startups, and more. Sustainable agritech platform Koltiva does its part in digitizing the agricultural supply chain by incorporating novel tech to monitor and increase crop production as well as to enable access between farmers, stakeholders, and end-users. 

The importance of the sector to the Indonesian economy is already pushing the country to innovate and deal with supply chain challenges head-on. 

Beyond tackling supply chain disruptions, there’s also a growing urgency to zoom in on sustainable practices in agriculture as the country drives toward an ambitious net-zero goal. 

Climate change brings a new dimension of challenge to this puzzle. The industry itself contributes to about 6% of total greenhouse gas emissions, the fourth biggest carbon emission contributor in the country. 

On the other hand, Indonesia’s growing population is exerting pressure on the agriculture sector to increase its productivity and meet food security targets. This pushes farming players to convert more land under forests to farm crops across the nation. This is true for most of Southeast Asia, where agriculture contributes at least 10% to the region’s GDP. 

Close to 90% of forest loss is associated with the expansion of agriculture. But without credible tracking and traceability tools to understand complex supply chains, it’s hard to know where changes must begin. 

As such, sustainable agritech is key in pushing Indonesia’s farming sector forward and ensuring accountability. The transparency provided via certification and traceability is critical to sustainably managing supply chains that are responsible for excessive land use and forest loss. 

In emerging markets such as Indonesia, the distinct challenges faced by small-scale farmers, who constitute a major portion of suppliers, growers, and producers in key crop sectors, provide a prime opportunity for startups. Innovators can leverage these challenges as a springboard to develop new solutions tailored to the unique agricultural landscape dominated by smallholders.

The local up-starts

Koltiva is a sustainable agritech and traceability platform. Its software that provides seed-to-table traceability has helped multinationals and large enterprises trace the origin of their goods’ core components, many of which are produced by farmers in Indonesia.

The Indonesian company serves over 1 million producers across 52 countries, with only about 49% of participating farmers based locally. The remaining are scattered globally in Ecuador, Colombia, Peru, Brazil, Mexico, the Ivory Coast, Nigeria, Tanzania, Kenya, the Democratic Republic of Congo, India, Pakistan, and China. Meanwhile, 50,000 EU-based businesses are now obligated to adhere to the Deforestation-Free Products Regulation. This gives Koltiva another large pool of potential customers, in addition to the 6,500 enterprises it already serves.

Importantly, Koltiva’s solutions are also improving the livelihoods of smallholder farmers. By prioritizing sustainable practices and traceability, sellers can command a better premium for their crops. 

Looking ahead

The Indonesian government’s net zero goal is a great start to combat climate change. However, more granular support is needed to improve local government support to link digital innovators with farmers. By getting closer to the sector, startups can better understand farmers’ needs and the context needed to offer meaningful solutions.

Regulators can shape policies to enhance transparency across the agricultural supply chain by making it necessary for large food companies to track emissions and ensure sustainable sourcing. 

While governments will undoubtedly have a role to play, the largest force for scaling a sustainable transformation on this front will come from the private sector. 

Private funding for the agritech space in Southeast Asia has grown substantially in the last decade. It is one of the top-funded sectors this year, having raised US$248 million in this quarter alone. There’s a strong need for investors to reassess their strategies when it comes to funding food and agritech. By getting capital into climate and sustainability funds, global investors can position themselves at the forefront of a transformative wave, ensuring both impactful and profitable returns.

This story originally appeared on KrASIA